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Reported ASX-listed company emissions are set to increase across the board, with big miners soon to report scope 3 FIFO greenhouse gas emissions – even if they don’t own or operate the planes.
The national market regulator Chair Joe Longo has said new and upcoming climate disclosure rules will be the “biggest change to corporate reporting in a generation”.
Those comments from the Australian Securities and Investments Commission (ASIC) were included in the foreword to an Australian Institute of Company Directors (AICD) report on the new rules.
From July 2024, any Australian company netting revenue of more than $500 million will need to start including scope 3 emissions in its annual reports.
Australia’s accounting regulator published a draft framework for the new rules this morning.
Explaining scope 3
The best way to explain Scope 3 emissions is for energy companies. Let’s use Shell as an example.
Shell’s scope 1 emissions relate to those emissions caused by operating drill rigs and gas platforms, and its scope 2 emissions relate to the refining and shipping process.
Its scope 3 emissions, however, go further – they capture emissions created by customers burning Shell-made fuel in their cars.
15 categories of scope 3
The international IFRS S2 standard for Scope 3 emissions will be used in the new standard, spearheaded by the Australian Accounting Standards Board (AASB).
There are 15 categories under that standard.
Scope 3 emissions to be reported include but are not limited to:
- Emissions associated with the extraction, production and transport of a company’s specialised goods and services
- Emissions associated with the transportation of equipment acquired by a company
- The emissions caused by fuels purchased electricity, and generation of any steam or gases
- Emissions from the travel of employees to and from work
- Business travel emissions
- Emissions associated with waste and end-of-use disposal
- Use of sold products
- Emissions associated with the “operation of investments”
Implications of a wide net
Both ASX-listed and privately held companies will be snared under the new rules.
Then heading towards the 2030’s, those rules will be applied to smaller and smaller companies.
Most notable in boosting up reported emissions will be those associated with FIFO operations, required for disclosure from the big miners.
Australian banks, too, will likely be caught up.
Never seen before in Australia: Clayton Utz
Clayton Utz reported in July this year in its primer on the changes following an initial report in June from the Federal Treasury, which ran consultations.
“The Government’s proposal for mandatory reporting will require a step change even for [voluntarily reporting companies,]” the law firm wrote.
“This will require significant investment by companies to enable them to report climate information to a level of specificity and detail beyond anything that has been seen before in Australia.”
How could shareholders react?
There are two main ways this is most likely to impact eligible companies’ share prices.
First, the increased operational expenditure costs related to the company measuring and reporting scope 3 emissions.
In the first instance, rising OpEx costs may make some companies’ bottom lines less attractive.
The energy, mining and construction sectors are most likely to be hit – but any company with international operations is likely to be caught up.
Consider blood plasma giant CSL Limited (ASX:CSL) which regularly ships blood from the US. Retailers shipping product from overseas are likely to be caught up, as will pipeline operators and even data centres like NEXTDC (ASX:NXT).
At the very least, companies will likely be shelling out money on measuring software, advisors, or combinations thereof.
Criticism magnet
Then there’s the risk of being open about just how many greenhouse gases your operations produce.
In the second instance, consider the impact of activist investors when Woodside (ASX:WDS) reveals how many emissions are associated with the use of its gas, and not just its production.
Big miners will need to report FIFO emissions, and for companies like BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue (ASX:FMG), this could lead them open to further ESG-based criticism.
Regular flight rotations going in and out of camps all across Australia will, over time, surely add up – and it’s probable that scope 3 emissions will be used to combat claims of environmentally friendly operations by critics.
Once all companies report scope 3 emissions, that will also allow proxy voters to begin measuring performance within the ASX, making it easier to increase pressure on companies.
Global push for enhanced reporting
As part of the global push towards carbon neutrality, companies are being increasingly required to be more and more forthcoming on greenhouse gas emissions and sustainability progress.
Earlier this month, the European Union (EU) in tandem with the European Central Bank (ECB) confirmed that European banks will soon be required to divulge how much of its balance sheet relates to sustainable business activities.
Earlier this year, the ECB had confirmed banks must begin disclosing climate risks in 2023.
So too is the US stepping up its push.
Since March of 2022, US market regulator Securities and Exchange Commission (SEC) has been flagging its intentions to boost climate disclosures in the world’s largest economy.
